Microsoft eyes new ways to sell Office

DENVER--Microsoft isn't quite ready to talk about plans for an ad-supported or online version of its Office franchise. But the company clearly is thinking about it.

"We've put more of our marketing IQ behind alternative business models and alternative distribution strategies in the last two years," corporate vice president Chris Capossela said in an interview at Microsoft's Worldwide Partner Conference taking place here.

"It's definitely something where we feel there is this whole population of people we are not reaching."

Many of those people are in emerging markets, where Microsoft is trying things like prepaid cards good for two or three months worth of Office use. But Capossela agreed that there is an opportunity to reach consumers in well-developed markets like the U.S. and Europe as well.

"Office is used by tons of those folks, but it's often old versions of Office," Capossela said, adding that the company is actively trying to see whether different ways of pricing or offering Office might prompt more consumers to use the latest technology.

"Would prepaid cards work in the U.S.?" We don't think so, but those are the types of questions we try to ask ourselves," he said.

One possibility is to introduce some sort of online productivity options as part of the Office Live suite of software. BusinessWeek reported last year that Microsoft was exploring such a move.

Which way next?
Microsoft won't say for sure that's where it's headed, though CEO Steve Ballmer did note in his keynote speech on Tuesday that Microsoft would soon rebrand its existing small business Office Live tools as it plans to add services for individuals to the Office Live line.

In its initial incarnation, Office Live has been about making new services available over the Internet, primarily e-mail and Web hosting. But Microsoft has been grappling for some time now about whether to offer more of its consumer software for free, supported by advertising.

An internal Microsoft position paper, as reported by CNET News.com in 2005, made the case for an ad-funded version of Microsoft Works, noting that Microsoft gets only a couple of dollars per new computer that sells with a bundled copy of Works. That revenue could easily be surpassed with an ad-funded version.

While those economics may indeed be true, Capossela pointed out that it's not just about revenue. One of the challenges is whether people really want to see ads when they are in a spreadsheet or word processing program.

"You can't just apply the economics," he said.

And Microsoft may not need to take its entire Office or Works product online. The company has talked broadly about a "software plus services" strategy in which online services are used to augment existing software products. One option that would fit that model might be for Microsoft to offer a "light" version of its productivity tools over the Internet, while relying on the full Office for more advanced document creation.

Both Capossela, in the interview, and Ballmer, in his speech, pointed to what Microsoft has done with Outlook and Exchange, where the e-mail and calendar data can be most comprehensively managed in the Outlook desktop program, though it can also be accessed via a Web browser through Outlook Web Access, on a smart phone through Outlook Mobile, or even through voice recognition on a standard telephone.

"That's really a great solution," Capossela said, but wouldn't say whether Microsoft would offer a similar approach to other Office applications such as Word and PowerPoint.

Google, for its part, already offers Google Docs and Spreadsheets, a lightweight, Web-based word processing and spreadsheet program, with the company also making moves to expand to presentation software.

Although it faces competition from Google and OpenOffice--whose offerings are free--Microsoft continues to see strong sales in the unit that includes Office. The Microsoft Business Division, largely on the strength of Office, grew its revenue in the most recently reported quarter to $4.8 billion, up from $3.6 billion in the same quarter a year earlier. Operating income grew to $3.4 billion from $2.4 billion a year earlier.

Capossela did say that it doesn't see a distinction between desktop productivity software and Web-based productivity software.

"We're very happy to be the leading vendor in the space and we want to continue to be the leading vendor in the space," he said. "We look at everything from ad-funded software to Web-based software to servers. Long term the way we differentiate from Google, it's the combination of all three: client, servers and services that is the winning strategy."